New math, new markets build Springboard’s portfolio

LOS ANGELES – By the of end of summer 2023, Springboard Hospitality will be just two hotels away from the “magic number” for critical mass: 50 hotels. That level of success is inviting introspection within this unconventional third-party management specialist known for a signature blend of quantitative analytics (QA), speed associated with tech start-ups and anticipatory customer and client care.

Giving up its entrepreneurial business model for the regimented approach of corporate culture isn’t even on the agenda for President and CEO Benjamin Rafter and the teams in Springboard’s dual Los Angeles and Honolulu headquarters. Their discussions center on how to scale up their core skills to maximize the efficiencies of a growing portfolio of independent hotels and resorts and optimize the innovative thinking of experts in operations, capital planning, marketing, revenue management, data management, sales and human resources who’ve integrated best practices not only from the hotel industry but from across a broad expanse of businesses.

In an interview with Hotel Investment Today, Rafter talked about the evolution of Springboard’s differentiators, what it takes for independents to compete successfully against brands and how putting his cell phone number in guest rooms helped grow a portfolio.

Hotel Investment Today (HIT): What skills did you learn as a tech entrepreneur that changed your approach to hotel management and development?

Benjamin Rafter (BR): The role of the entrepreneur is similar across industries. We’re always trying to disrupt things or embrace new ideas. Tech companies move more quickly and are more focused on startup growth at all costs. We employ some similar elements. Our culture is fast-moving and decision-oriented with a reasonable amount of controlled chaos. If one came from a regimented culture, more akin to the large flags, the learning curve of working for us would be very steep. There’s no way someone like me could fit in at a huge company with hundreds or thousands of properties. One culture isn’t better than the other. It’s just different.

HIT: Why did you leave tech?

BR: I initially left tech because I had a “lockout” from selling my second startup. I could have sat around doing nothing for a year but was instead drawn to the hospitality industry which was my first job during college. After going back to hospitality, I was happy to leave pure tech in the rearview mirror. Hospitality is special. Some people save their entire lives to go to places like Hawaii. To see the fruits of our labor positively impact their experiences is rewarding. In general, this industry is a lot more interesting and fun.

Arizona’s Hotel St. Michael is Springboard Hospitality's 48th property

HIT: How did you customize QA to get a better read on the layers of trends drawn from such large and diverse datasets, and how do you use that information to assess market, asset and operations potential?

BR: Quantitative analytics is really just the process of collecting and measuring data. For many it starts and ends with STR reports or market studies. We’ll pull data from hotel sources and from other sources including government data (local and federal), construction, labor and more. Sometimes this is automated and sometimes we gather it ourselves – either internally or via offshore resources. What makes us different, though, is that we have people classically trained in QA from a wide variety of industries, most notably investment banking, that interpret the data. This leads to better modeling and the ability to identify new markets, operations trends and more. It pairs well with tech where we use our tech backgrounds to probably reject more technologies than other management companies. At heart, we’re data junkies.

HIT: How many deals do you expect to do and how many projects do you expect to close by the end of this year? How big is too big?

BR: It’s going to be a challenge because of all that customization we’ve talked about and the fact that I still do a big chunk of the modeling. I can’t do it when there are a hundred properties. And one of the things we pride ourselves on is that I’m going to know what every owner’s occupancy is on any given day, and I’m going to know what their general NOI is on any given day. It’s a big deal that I visit all the properties every year, some of them multiple times. If I can’t do that, we have to question our portfolio size. If we’re lucky enough to get to 60 properties, we have to look really hard and say, ‘how do we do it’ for our owners, our partners and our guests. How do we do it if we can’t provide that level of touch and service that we can deliver with 40 properties? We’re at 48 now, including some of the newbuilds. I would be more than happy if we were at 50. We’re not built to add 12 properties a year. I don’t see us being too much bigger than maybe in the low 50s.

HIT: What under-the-radar markets are you targeting?

BR: I would like to get back to some of the urban markets that I think have some potential. Our list of urban markets might be surprising. There are the usual gateway West Coast markets, as well as the southeastern markets that everybody is flocking to, but there are also markets like Denver that we love, even if it is overbuilt for independent properties. Kansas City, Missouri, is showing up on our list partly because we think that there’s room for that lifestyle type of fully independent hotel in a market like Kansas City to carve a space. We still like near-big-city locations — what people call drive-to markets. The market is going off from COVID peaks, but we still like a handful of the near-to big-city markets that we can grow. Seattle has some life – it’s owner unfriendly, it’s business unfriendly, but it’s more appealing than, say, Portland, and we’d like to check that box. And then once you’re in Hawaii, there are really only three or four companies that operate there.

The smartest thing I’ve ever done in this industry is to follow Mike Paulin’s (former founder and chairman of Aqua Hospitality, now Aqua-Aston Hospitality) advice and put my cell phone number in every single room... I learned in a hurry what guests liked and didn’t like about every aspect of their experience.

Ben Rafter

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HIT: Springboard can sell uniqueness against the brands, but how do you sell owners on the gap in cost efficiencies between a portfolio of 50 properties mostly under 150 rooms and a global chain?

BR: We probably spend twice as much money on revenue generation. We don’t have the flag at our back, so we need to know how to go out and get the revenue rather than relying on the flag to create it. But we start with cost savings being 12% or 13% in our favor because we don’t have the flag’s overhead. We’re not paying those marketing and reservation fees. And then we’re always finding more we can do when our handbook has not been written in New York City or Bethesda, Maryland, or wherever. We can tailor costs to the specific requirements of the individual property and owner.

We’re big believers in centralizing operations and clustering. They help drive the owners’ bottom line. Hawaii is a good example. We have 13 hotels in Hawaii. The revenue management, accounting and sales are all driven centrally, which creates enormous savings. But content production and a lot of the marketing and people programming are all driven locally on the property to make sure each one is unique.

HIT: Without a brand, how do you help clients find debt and equity?

BR: That goes back to what I think we’re extremely good at – modeling that is extremely accurate, extremely detailed, and incorporates as many pieces of data as possible. And it’s eminently defensible. A lot of our owners don’t want co-investment but we’re not going to manage a property that we wouldn’t be comfortable investing in, as well. And the reason for that is twofold. We want to manage properties we like and we’re not trying to grow for growth’s sake. So, we are selective in the properties we manage. The second and probably more important reason is if we don’t believe in the vision, we can’t execute for an independent property. Anyone who doesn’t believe in what they’re doing is going to fail. That’s true for a lot of things, but it’s especially true the more customized you get.

HIT: What levels of IRR or ROI do your clients expect?

BR: It depends on the type of investor. We’re trying to work much more with family businesses and high net worth individuals who are looking more at cash flow and an equity multiple at this point. IRR-driven investors are still looking for 18% to 22% on a five-year exit. For a while that was dropping to 15% or 16%. But why would a hospitality investor take a risk for 15% or 16% IRR when they can get 12% or 13% for preferred equity? As an example, the White Sands has a high-net-worth owner with no real desire to sell it. They want to clip the 12% to 14% coupon and then have an equity multiple and a few years of seven or eight times (multiples), which is actually pretty low in that case. It’s a safe play to have land in Hawaii for them.

HIT: What’s the best advice you ever got?

BR: The most important advice I ever got was to never forget that beneath all these models, at the end of the day, we have a customer and, first, that customer has to buy the experience. Then we have to deliver on that experience. The smartest thing I’ve ever done in this industry is to follow Mike Paulin’s (former founder and chairman of Aqua Hospitality, now Aqua-Aston Hospitality) advice and put my cell phone number in every single room. I was with Aqua Hospitality at the time, and we had four or five properties. We grew to 11,000 hotel rooms and they all had my cell phone number in them. I learned in a hurry what guests liked and didn’t like about every aspect of their experience.